Central bank digital currencies (CBDCs) are digital versions of a nation’s official currency, issued and backed by the central bank. They promise instant, secure transactions and wide accessibility while retaining the trust of traditional money. In the UAE’s case, the planned “Digital Dirham” is a state backed digital currency designed to modernize payment systems and spur innovation. Global observers note that the UAE is combining this CBDC rollout with other digital initiatives (such as regulated stable coins) to build a cutting-edge payments ecosystem.

The first Digital Dirham issuance (as legal tender) took place in January 2024, when H.H. Sheikh Mansour bin Zayed Al Nahyan, the UAE’s Vice President and Chairman of the Central Bank of the UAE, conducted a cross-border payment via the mBridge pilot platform. Since then, a real value retail pilot has run to test the design and technology of the CBDC. The Dirham will launch in phases: it will use an intermediated two-tier model (via banks and licensed fintech wallet providers), be non-interest bearing (to encourage payments use), and remain fully interchangeable with cash and bank deposits. In fact, officials say the November 2025 trial transaction, between the UAE Ministry of Finance and Dubai’s finance department, was completed in under two minutes using the CBDC. This “first government transaction” represents a “qualitative milestone” in the UAE’s digital transformation, one top official explained. Retail rollout is slated for late 2025, when residents can top up CBDC wallets through banks or approved apps and use them in stores or for peer to peer payments. (The central bank emphasizes that strong KYC/security checks will accompany this rollout.)

Dubai’s leadership has announced a parallel cashless economy strategy. Under this official plan, over 90% of all payments in Dubai should be digital by 2026. Government services are already almost fully online, and Dubai is partnering with major firms (airlines, retailers, utilities) to encourage contactless payments and mobile wallets. The Dubai Finance Department says the cashless drive could add over AED 8 billion per year to GDP through greater efficiency. In practice, that means pushing QR code and NFC payments, digital invoicing and automated settlements. The UAE Visa network reports that roughly 23% of transactions still use cash, underscoring the growth potential. As one government release notes, this initiative “reinforces Dubai’s vision of becoming a leading global hub for digital innovation” and supports the emirate’s wider economic agenda.

Overall, Dubai and the UAE are positioning themselves as regional leaders in going cashless. Top officials hail the Digital Dirham as a “strategic pillar” in building an integrated digital economy. Economically, a digital currency and cashless system can cut transaction costs and settlement times, as well as boost the fintech sector. Technologically, it relies on robust digital infrastructure (distributed ledger tech) and strict cybersecurity, the central bank stresses that wallet providers will need strong data protection and compliance. International institutions have taken notice: for example, an IMF report in late 2025 noted that the UAE’s financial modernization is progressing steadily, with the Digital Dirham rollout and new stablecoin rules.

In policy terms, a state issued digital currency gives the government complete control over money supply and payment data, which can help in oversight but raises questions of privacy and access. The UAE insists inclusion is key: CBDC access will be available not just through banks but via fintech wallets to reach unbanked residents. On the other hand, by moving rapidly to digital money the UAE may set a precedent for the region.

Will Dubai truly become the first Arab economy without paper cash? The answer is that the UAE is certainly on track to be the region’s frontrunner, but a completely cashless society would still be unprecedented. For now, cash and cards remain legal tender, government communications explicitly note that people “will still be able to use cash and cards, but CBDC may gain preferred status over time”. In practice the transition will be gradual. If the Digital Dirham and cashless targets go according to plan, Dubai could dramatically reduce its reliance on bills in the next few years. However, most analysts believe the move must balance innovation with consumer trust and security. Any final decision to scrap paper money entirely would require broad agreement and likely comes after the CBDC is fully proven.